Pocket listings grow as more sellers keep homes off MLS

Nick Palmer and Teresa Lasaga with dog Betty at the San Mateo home they purchased through an off-MLS pocket listing. (Carlos Avila Gonzalez, SF Chronicle)

After getting outbid on 16 homes, Teresa Lasaga and Nick Palmer were about to give up on becoming first-time home buyers. Then an agent who had sold a home they narrowly missed out on told them about a “pocket listing” on another property in the same neighborhood.

A pocket listing is a home for sale that hasn’t been entered into the Multiple Listing Service, and they account for a growing percentage of real estate activity in parts of the Bay Area.

Instead of putting homes on the MLS, agents market them through informal networks or new online platforms. Some Realtor associations say this hurts sellers and are taking steps to discourage it. At the same time, some Multiple Listing Services are adding a “coming soon” feature that offers some of the benefits of pocket listings.

Palmer said the agent with the pocket listing — a 1,400-square-foot home in San Mateo’s Shoreview neighborhood — got in touch with his agent and asked them to submit an offer, saying, “If we like the offer, the house is yours. If not, we will put it on the market.”

“We wanted to do something that would stand out so they would bite, but we didn’t want to offer so much they would think they could get a lot more if they put it on the market,” Palmer said. After some negotiating, Palmer and Lasaga, both 26, got the house for $640,000 and took possession in May.

For a while, the couple worried they might have paid too much. But a few weeks ago, a smaller, slightly more updated house down the block went on the market for $100,000 more.

Growing trend

Pocket or off-MLS sales have always been around. Some celebrities, business tycoons and older sellers don’t want their homes on the World Wide Web and hordes of people traipsing through. But their prevalence seems to be growing.

MLSListings Inc. is the MLS service for Santa Clara, San Mateo, Santa Cruz, Monterey and San Benito counties. It estimates that the percentage of homes sold in its territory that never hit the MLS rose from 12 percent in 2011 to 15 percent last year, and grew to 26 percent in the first quarter of this year.

It got those numbers by comparing home sales in county recorders’ offices with those in the MLS. It repeated that analysis for other counties and estimates that the percentage of homes sold off-MLS last year was 7.6 percent in San Francisco, 8.4 percent in Alameda and 29.4 percent in Contra Costa.

These figures understate pocket listings, however, because they don’t include homes entered into the MLS as pending or sold. Some agents enter homes into the MLS after they have been sold to provide a more complete database for price comparisons.

In the first quarter, 14 percent of properties in the South Bay MLS went from active to closed in five days or less, said Jim Harrison, president and CEO of MLSListings, “which means they were probably sold before they were put into the MLS.”

Harrison says he believes off-MLS listings “are growing in every major city,” based on feedback he got when his research was presented at a national Realtors meeting in May.

One reason pocket listings are growing is because the market is so hot, it’s easier to negotiate a sale privately than to fix up a house, stage it and hold open houses. “Right now there are so many buyers and so few properties for sale, it’s just a function of the marketplace,” said Walt Baczkowski, CEO of the San Francisco Association of Realtors.
‘Online dating’

There are about 70 MLS services in California; most are owned by one or more Realtor associations. They usually charge agents an annual fee to list properties, and typically require them, within two or three days of signing a listing agreement with a client, to list the property or file an exclusion agreement, signed by the client, granting permission to withhold the listing.

Agents sometimes file an exclusion to give clients more time to spiff up a property before listing it. During this period, they might also quietly market the home. If it sells, it might be listed after the sale or never.

A number of websites have sprung up to facilitate off-MLS marketing. Pocketlistings.net, in San Francisco, and Producers Forum of Palo Alto both describe themselves as “online dating services” that connect agents who have qualified buyers looking for particular types of homes with agents who have pocket listings meeting those criteria.

“If there is a match, both agents get a notice,” says Eric Trailer, who started Producers Forum in late 2010.

Producers Forum is open to any licensed real estate agent or broker, but does not charge them. It sells ads on its site to mortgage companies, inspection and appraisal services and other vendors. Pocketlistings.net also does not charge, and allows licensed real estate agents to post pocket listings on its site.

Network of agents

Top Agent Network, based in San Francisco, lets agents in the top 10 percent of their market based on sales volume communicate with each other online. “It’s a private forum. We control the discussion,” says founder David Faudman. About 30 percent of what they discuss, he said, “are pocket and pre-MLS listings.” The network charges agents a subscription but plans to switch to an ad-based model.

Faudman does not think his forum has increased the volume of pocket listings. He said it’s just made communication “more efficient. Before it was all whispers and private morning doughnut groups.”

Some agents say pocket listings help sellers because they can test the waters before placing their home on the MLS. If the price seems too high, they can lower it before putting it on the MLS, thereby avoiding a public price reduction.

“There is an assumption that if your house doesn’t sell in a week, there is something wrong with it,” said Chris Iverson, a Realtor with Dreyfus Properties in Menlo Park. If you do advance marketing off the MLS, “you don’t have that ‘days on market’ counter running against you.”

Patrick Tinney, an agent with Keller Williams Realty in Palo Alto, says he recently put a house in Redwood City on Producers Forum “just to get a week of fishing around to see if there are any buyers” before listing it on the MLS. Tinney says pocket listings can benefit sellers because “they get a quicker sale.” They can also help buyers because “they don’t have to look at a million houses,” and agents because “because it is less work.”

Less exposure

The California Association of Realtors contends that pocket listings hurt sellers, because fewer potential buyers see their homes.

On July 16, it added a section to its residential listing agreement that promotes the benefits of an MLS listing and warns about opting out. “Any reduction in exposure of the Property may lower the number of offers and negatively impact the sales price,” it says. Sellers and brokers must initial the warning.

California Realtors are not required to use this contract but most do. A similar warning has been added to some MLS-exclusion forms.

In late July, MLSListings Inc. significantly boosted the fines it charges when agents don’t list a property on the MLS or file a timely exclusion agreement. Fines went to $500 from $100 for the first offense, to $1,000 from $200 for the second, and so on.

Double dipping?

Another concern is that pocket listings give agents and their brokerage firms a chance to represent both buyers and sellers and keep both halves of the commission normally split between buyer’s and seller’s agents and firms.

These dual-agency deals “are way up in our market,” said Harrison of MLSListings.

Robin Dickson, president of the Contra Costa Association of Realtors, says some agents are withholding listings from MLS “and putting them on Craigslist or Zillow with the intent of drumming up a potential buyer,” so they can represent both sides.

State law does not require agents to list properties on an MLS, nor does it prohibit dual agency. But sellers must give “informed consent” in both cases, says Lisa Stratton, a spokeswoman for the California Department of Consumer Affairs. Stratton adds that the California Bureau of Real Estate has not received many complaints or published guidance about pocket listings.

As an alternative to pocket listings, some Multiple Listing Services are adding a “coming soon” feature. The San Francisco MLS added one in late July. It lets agents share soon-to-be listed homes only with other agents, keeps them off external websites and keeps the days on market count at zero until the listing changes to active.

(A version of this story appeared Aug. 4 in the San Francisco Chronicle.)